Organisations representing the retirement industry have welcomed National Treasury’s response to their concerns about the Pension Funds Amendment Bill (PFAB).
The PFAB amends the Pension Funds Act (PFA) to align its provisions with the two-pot retirement system, which takes effect on 1 September.
One of the main concerns raised by the Association for Savings and Investment South Africa (ASISA) and the Institute of Retirement Funds Africa (IRFA) is the contradictions between the PFAB and the Divorce Act. Retirement funds need clarity on whether the PFA or the Divorce Act must prevail when the provisions of the Acts come into conflict.
Read: Industry red-flags contradictions between Divorce Act and pension law amendments
National Treasury will insert an application clause in the Bill to provide that if there is a conflict between the Divorce Act and the PFA, the PFA will apply. “This is in terms of the general application and interpretation of statutes, where it is stated that the provisions of the latter Act prevail,” Thandazile Alvinah Thela, Treasury’s director for retirement savings, told Members of Parliament yesterday.
Thela presented Treasury’s response to the commentary provided by stakeholders at last week’s meeting of the National Assembly’s Standing Committee on Finance (SCOF).
She also said that Treasury has agreed to ASISA and IRFA’s request that amendments not related to the two-pot system be removed from the PFAB.
As a result, the status quo is retained in respect of the payment of a divorce award to a non-member spouse: the capital value of the member’s benefit will be shared; the award will not be made from pension income, as the Bill proposes.
Another proposed amendment that will be removed from the PFAB is for the registrar of court, instead of the former spouse, to send a divorce order to a retirement fund.
ASISA also flagged that the wording of the PFAB implies that a fund member’s retirement component is excluded from deductions permitted by section 37D of the PFA.
Thela said this was not the intention. The Revenue Laws Amendment Bill states that section 37D-related deductions will be deducted proportionally from all a member’s components. The PFAB will be redrafted to remove suggestions that permissible deductions are from the savings component only, she said.
The industry’s fourth main concern related to the “special protection” provided to a member’s savings comment: The PFAB proposes that a fund must prohibit a member from accessing the savings component if the fund is made aware of a pending section 37D-related deduction that might not be met if the fund is allowed to withdraw from the savings component. The Bill does not provide for similar protection to the other components. The fund must obtain a court interdict to stop the member from tapping into, for example, the vested component if there is a pending order against the member.
The industry requested that an interdict should also be required to prevent members from accessing their savings component if any claims are pending against them.
Thela said Treasury’s position is that if a member leaves the services of an employer, a deduction will happen. Before exiting the services of the employer or leaving the fund, a member has access to the savings component only. Access to the savings component will be restricted only if doing so will result in insufficient amounts remaining to settle any pending court order.
In addition to addressing the above four concerns, Treasury accepted the need to redraft various provisions of the Bill for the sake of clarity. However, it rejected some proposals to amend or remove certain provisions.
Click here to download Treasury’s full response document.
Adri Messerschmidt, a senior policy adviser at ASISA, said the organisation was happy that the main concerns raised by its members “will be sorted”.
IRFA board member Nancy Andrews said her organisation also welcomed all the proposed changes.
“We need to see this Bill to finality so that we can actually move ahead with the next steps for us to implement this two-pot system,” she said.
SCOF’s report on the PFAB is due to be tabled before the National Assembly on 27 March, when the second reading of the Bill will take place.
The Committee will meet this Friday to finalise its report.
